The GSEs’ loan performance data excludes various loan types, such as ARMs and low-documentation loans, that performed poorly in the financial crisis. Nearly half of the GSE loans originated in 2006 and 2007 are expurgated from the data provided to CRT investors.
Part of the problem is that the current proposed rule was a product of the previous director and much has changed since the rulemaking began a year ago.
The transaction is structured so that Fannie retains the first 40 basis points of losses. Once the $42 million retention layer is exhausted, re-insurance will cover the next 375 bps of losses.
Treasury claims the GSEs’ unfair advantage is because of their capital treatment. Urban Institute researchers say it’s because of the government backstop of their credit risk.
Fannie Mae last week announced it completed a multi-tranche credit-insurance-risk transfer transaction covering an astonishing $11.7 billion worth of multifamily loans held in portfolio.
To paraphrase Mark Twain: Rumors of HARP’s death have been greatly exaggerated. At least that’s the finding of a recent report by structured finance analysts at Bank of America Merrill Lynch who looked the impact similar programs will have on the GSEs’ credit-risk transfer programs.
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